<DAILY DOUBLE>
Thursday, May 13, 1999

Net.B@nk, Inc.
(Nasdaq: NTBK)
Phone: 770-343-6006
Website: www.netbank.com
Price  (5/12/99): $186

HOW DID IT DOUBLE?

This ain't your mama's bank. With no branch offices and operating solely over the Web, Net.B@nk (Nasdaq: NTBK) exemplifies the new era of companies that are taking advantage of the digital revolution. Unlike many of its Net-stock brethren, the company has actually attained profitability during its quest to gain market share. Mix profits with a highly scalable business model and it is little wonder that Net.B@nk has been on a run.

It's amazing to look back and see that the shares traded as low as $10 3/4 during the autumn panic that saw so many stocks thrown in the discount bin. The stock had recovered and nearly tripled off its lows to $27 1/2 by the time 1999 was ushered in, but that proved to be merely the beginning of things to come.

The week before Easter, Net.B@nk was one of the more interesting stocks to watch. Ending the previous week at $119.50, by Wednesday the stock had topped at $249 after two days where 6 million shares traded hands each day. This happened to a company that hadn't seen more than a million of its shares trade in one day throughout 1998. All it took to propel the stock to the stratosphere was some positive comments by the company's CEO and an announcement of a 3-for-1 stock split. Welcome to the bizarro world of Internet stocks, where the only thing eclipsing the hot prospects of the companies themselves is the speculation and volatility.

BUSINESS DESCRIPTION

Net.B@nk is the world's first profitable bank that operates solely on the Internet. Like traditional banks, customers using Net.B@nk have their deposits federally insured. The company offers checking accounts, certificates of deposit, and money market accounts as well as brokerage services. For those looking to borrow, the company offers credit cards, mortgages, auto loans, and a variety of other loan products. Net.B@nk also offers account holders the use of ATM cards as well as the option of paying their bills online.

Because of the low cost structure brought by not actually having physical locations, Net.B@nk is able to offer its depositors higher-than-average interest rates on their accounts. Being on the Internet, the bank also operates around the clock. The company has customers in all 50 states as well as 20 foreign countries.

The company changed its name from Atlanta Internet Bank to Net.B@nk in the fall of 1998.

FINANCIAL FACTS

Income Statement*
12-month sales:        $24.2 million 
12-month income:        $5.0 million
12-month EPS:           $0.81
Profit Margin:          20.7%
Market Cap:         $1,599.2 million 
(*Includes one-time tax benefit)

Balance Sheet 
Total Assets:         $526.5 million
Deposits:             $332.7 million
Shareholder's Equity: $143.7 million 

Ratios
Price-to-earnings: 229.6 
Price-to-book:          11.1   
HOW COULD YOU HAVE FOUND THIS DOUBLE?

Long-time readers of the Daily Double may remember when Net.B@nk was featured here under a different name. Thirteen months ago Atlanta Internet Bank was featured with a positive spin by Rick Munarriz when the company was nothing more than a second-tier Internet stock with less than $3 million in trailing sales. Rick said, "The stock has shown the sizzle, and now the steak is coming." Sizzle it has, and there has also been plenty of steak since the shares are up nearly six-fold from where they were trading when that first Double ran.

Another way to have been turned on to this company is simply by looking at the quarterly results. Going from $2.3 million in revenue in 1997 to $24.2 million in revenue over the past twelve months, it should be apparent that Net.B@nk has growth in spades. And, when the bottom line turned from red to black last year and continued its consistent growth, it was obvious that Net.B@nk was for real.

Watching the company successfully bring another $104 million in equity to its balance sheet in a secondary offering in February could have been another hint that perhaps the stock was ready to take flight. Armed with an attractive product and ample liquidity with which to market itself, the company was poised to show the type of growth that drives Wall Street into a frenzy.

WHERE TO FROM HERE?

There is little doubt that Net.B@nk is set to post impressive growth over the next couple quarters. With free checking accounts that yield roughly triple the national average (currently 3.00% versus the 0.94% average), there should be little question why folks are attracted to the bank. The company increased its total accounts more than 50% over the first four months of this year to 27,000, with roughly two-thirds of those being active transactional accounts. This is on top of the company nearly tripling its account base last year. Online banking truly is the wave of the future, and few institutions are better positioned than Net.B@nk to take advantage of the shift.

This isn't to say that Net.B@nk won't have competitors down the road. Many of the traditional banks already have Internet operations, and the growing online pie will undoubtedly cause other online-only banks to sprout up. Nevertheless, it will be tough for the stodgy bricks-and-mortar institutions to match Net.B@nk's low cost structure. Plus, being first and among the largest is a huge advantage in the world of electronic commerce.

That said, much of the company's expected growth is already factored into today's price. As of this writing, the company was trading at more than 10 times book value, which is nearly an unheard-of multiple in the traditional banking world. But then again, Net.B@nk is anything but a traditional bank. Today's going price on the shares remains rather lofty, yet there are some very valid reasons why the stock has been bid up.

One of Net.B@nk's most attractive attributes is that its business model makes it highly scalable, especially compared to its corporeal competition. The fact that the company is able to add thousands of accounts without spending a dime on real estate should certainly raise an eyebrow or two. While the volatility in the stock does not look to abate any time soon, predicting vibrant growth in online banking as a whole, and at Net.B@nk in particular, looks to be a rather safe bet.

--Paul Larson (TMFParlay@aol.com)

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